Buying Property in Portugal: A Guide to the Promissory Contract

With stunning locations like Lisbon, Porto and Lagos in the sough-after Algarve region, investing your dream home in Portugal is an exciting journey. However, it can be difficult to navigate all the intricacies of the property buying process. When buying property in Portugal, you will come across a specific agreement call the Contrato de Promessa de Compra e Venda (CPCV). The CPCV Portugal is a promissory contract that holds significant importance in the property buying process as it provides substantial protection to buyers and sellers.

The promissory contract or promissory note confirms the buyer’s intention to proceed with the purchase and makes it difficult for either party to back out of the agreement. It acts as a binding commitment, ensuring the sale’s completion and offering security to the buyer. Although some sellers may suggest skipping this contract to reduce legal costs, doing so diminishes the buyer’s level of protection.

In this article, we’ll give you an overview of the promissory contract (CPCV), property deposits related to this written promise, and why the promissory contract (CPCV) is always a good idea. We will also explore the benefits of a secured promissory note versus an unsecured one.

Understanding Types and Uses of Promissory Notes and Promissory Contracts

As mentioned above, the promissory contract, known as the Contrato de Promessa de Compra e Venda (CPCV) in Portugal, is a written agreement between parties involved in selling property in Portugal.

However, promissory notes have other functions as well. A promissory note can also be issued by a financial institution for a mortgage loan, or different types of multiple loans taken by a lender. The mortgage contract is put in place by financial institutions to ensure that the specified sum of money loaned and interest thereon will be paid by the lender as per the agreed-upon terms of the monthly payment amount and interest rate. Much like the CPVC protects both the buyer and seller in a property sale, the promissory note protects both the lender and the financial institutions if the borrower defaults or fails to honor the agreement of the loan amount.

Why the Promissory Contract is a Critical Part of the Buying Process

Another crucial aspect of the promissory contract is that it formalizes all the agreed-upon terms and ensures both parties sign the document. During the house viewing, you may have noticed specific issues or missing paperwork that warrant further investigation, such as the need for a survey.

When you raise these concerns, you may often encounter responses like “It’s fine” or “Don’t worry.” While sometimes it’s the seller’s agent being friendly, other times they may attempt to downplay the issues, hoping you’ll proceed with the purchase without addressing them.

The CPCV prevents such practices by allowing you and the seller to establish the contract’s terms. It is common to include conditions such as the sale being contingent on mortgage approval for the specified amount and the survey or property inspection not revealing any significant problems.

What’s more, the CPCV typically specifies what items will remain in the property upon completion of the sale. While it is not unheard of for sellers to take everything, including lightbulbs, it is equally common for them to leave everything behind, especially when selling a property previously owned by a deceased relative, and have no interest in retaining dated furniture.

Typical Details of the Promissory Contract Should Include

Every CPCV should contain specific details. Below, we’ve made a list of items that should be listed in this contract:

• Identification of the buyer, seller, and their representatives, including names and contact information 
• A comprehensive description of the property, including its habitation license and registration number
• The CPCV should clearly state the principal amount of the selling price for the property
• Specification of the deposit amount, payment method, and clarification regarding any additional payments to be made between the promissory contract and the signing of the deeds (Escritura)
• Inclusion of any additional items or furnishings that are part of the sale
• Definition of the sale completion date and details of the witness when the deeds will be officially signed
• Provision outlining the course of action in case of any delays in payment schedule, issues with real estate governing law, or property-related delays
• The CPCV should outline the conditions that each party must meet before the signing of the Escritura

These elements ensure that the promissory contract includes crucial information and establishes the framework for the subsequent stages of the property transaction.

The Difference Between a Secured Promissory Note and an Unsecured Promissory Note

Similar to the option of secured and unsecured loans from financial institutions, there are secured promissory notes and unsecured promissory notes.

For instance, an unsecured loan is not backed by collateral by the lender borrowing money. However, a secured loan includes collateral signed to the promissory note, such as an asset or other financial backing valued at the loan’s principal balance in case of late payment or defaulting on payments. The promissory note or contract offers the written promise that protects the financial institution’s interests and the ability to give the lender written notice and, if such proceeding is needed, take legal action to ensure compliance with the terms of the promissory contract.

There are also similar types of promissory notes related to property sales. Secured promissory notes have collateral behind them to ensure the sale agreement, while unsecured notes only offer a verbal promise and understanding, making it riskier for the buyer. This is especially risky if you have fully paid your deposit. A secured promissory note and the professional services of a certified public accountant, real estate lawyer, or buyer’s agent will give you peace of mind and protect your interest as the buyer.

If the buyer or seller decides to pull out of a deal, promissory estoppel is always available. According to The Gazette of Official Public Records in the UK, promissory estoppel is like a safety net for promises. It prevents either party from backing out of a written agreement or a promise when the other party has relied on it to their detriment.

Suppose either party makes an explicit promise, and the other person relies on it, and they suffer losses due to believing in a promise. In that case, the promisor cannot simply retract without consequences. But there is a catch – you can only use promissory estoppel to take the party pulling out to court if a legal relationship is established. In these cases, the courts weigh in to decide if it’s fair to hold someone to their word based on how much the promise affected the other person’s actions.

Deposits According to Promissory Notes

One crucial stage in the property acquisition involves placing a deposit and signing the promissory contract. After making an initial offer, the promissory contract confirms your intention to proceed with the purchase.

While submitting a deposit is a customary practice in numerous countries, it holds greater significance in Portugal due to the promissory contract (CPCV), which imposes significant obstacles for either the buyer or seller to withdraw from the agreement.

When entering into the promissory contract, it is customary for the buyer to provide a deposit, known as the sinal, typically amounting to between 10 percent and 25 percent of the property’s value. Still, if both buyer and seller agree, this can be lower.

While the specific deposit amount may vary, the seller or seller’s agent may occasionally request a higher sum, 10 percent is a common practice. The terms outlined in the promissory contract typically specify that if the buyer withdraws from the agreement, they forfeit the deposit. On the other hand, if the seller decides to back out, they usually have to compensate the buyer twice the deposit amount.

Payment according to the promissory agreement

Typically, the deposit is paid via a cheque or bank transfer, usually made payable to the seller directly or to the seller’s lawyer. It is worth noting that utilizing an escrow account for holding the deposit funds is not commonly observed in Portugal (an escrow account is a third-party account where funds are held before they are transferred from one party to another).

Key Takeaways About the Promissory Contract (CPCV)

Although it may seem a time-consuming and stressful addition to the process of buying property in Portugal, the CPCV is an assurance and protection for the buyer. Don’t bypass this; don’t let any seller or seller’s agent talk you out of signing a CPCV. In addition, make sure to use the help of a buyer’s agent, such as Goldcrest, to ensure that your best interests are always represented.

Additional legal documents for real estate transactions in Portugal

When investing in Portugal real estate, there are several other legal documents alongside the simple promissory note you will need for the entire agreement and settling of real estate transactions. Below, we will look at a few of the documents you will need to get to avoid any legal issues and protect your interest through your property-buying process. You can also consult our guide to property documentation in Portugal for more information.

According to the Portuguese Public Service portal, you will need the following documents to start the process:

• Property description document: A document issued by the Tax and Customs Authority containing property features and details
• Title search: Issued by the Property Registry, this document includes the information on the location and composition of the property and the owners
• User license: Depending on the property’s Municipal Authority and state law, this document serves as proof that the property has been inspected and deemed legally compliant.
• Energy certificate: The National Energy Agency issues this document after confirming the energy efficiency of the property.
• Building data sheet: A document containing the technical and functional characteristics of the property
• Declaration of non-debt: After doing background checks on the property’s history, this document will be issued stating that there are no debts left to repay on the property.

Goldcrest: How We Can Help You 

Goldcrest is a buyer’s agent that is based in Lisbon. We provide expert, impartial advice on real estate investments and how to buy property in Portugal. From scouting out the perfect property through to property acquisition, we have you covered throughout the process.

If you are looking to purchase property in Portugal, don’t hesitate to get in touch. Our team of skilled experts is available to solve all your real estate doubts, helping you with the property search and offering insightful expertise and strategic advice.

Why choose Goldcrest?

• Local knowledge: With offices located across Portugal, our presence nationwide allows us to assist you personally across the country.
• Independent service: As an independent buying agent, we do not represent any development or project. Our service is entirely tailored toward each individual client, providing you with everything you need to secure the perfect property at the best possible price. As an impartial advisor on the market, we work solely on behalf of our client and provide a service tailored to your needs and requirements.
• Streamlined process: Our real estate agents speak English and Portuguese, and our service is completely focused on providing you with a hassle-free buying experience, saving you time.
• Experienced team: Our expert real estate team has a vast local knowledge of the Portuguese property market. We have cutting-edge technology and metasearch tools at your disposal to provide full market coverage, ensuring the best investment choices and negotiated prices.
• Network of partners: Lawyers, property management services, builders, architects, designers, and landscape gardeners, again saving you time and hassle by providing you with trusted experts in their field of work.